Test Prep For AP® Courses


A company decides to spend $500,000 on office renovations. What is one opportunity cost of this decision, from the perspective of the company?

  1. Worker happiness from the better work environment
  2. Fewer dividends to the company’s shareholders
  3. Forgone investment in new capital equipment for the company
  4. Rental fees for the office building
  5. Fees paid to the construction company that has been hired to complete the renovations

A country can produce 10,000 more automobiles but doing so will require it to produce 5,000 fewer computers. The opportunity cost of producing one automobile in this example is therefore ____________.

  1. 10 automobiles
  2. 5 computers
  3. 2 computers
  4. ½ of a computer
  5. ½ of an automobile

Consider the following production information for Country A.

Point Quantity of Automobiles Quantity of Computers
A 10 0
B 9 7
C 8 14
D 7 21
E 6 28
F 5 35
G 4 42
H 3 49
I 2 56
J 1 63
K 0 70
Table 2.2
  1. Using the information above, draw a Production Possibilities Frontier for Country A.
  2. Given the information in this table, what is the opportunity cost of one computer in terms of automobiles?
  3. Suppose another country, Country B, has an opportunity cost of one computer equal to three automobiles. Should Country A or B specialize in production of computers? Explain.
  4. Does the PPF you drew in part (a) exhibit increasing opportunity cost in the production of either computers or automobiles? Explain.